What is a DAO, and why does it matter for 2022?

What is a DAO, and why does it matter for 2022?

Hannes Graah is the former VP of growth at Revolut, and founder of stablecoin yielding protocol, Gro. He also spent eight years at Spotify scaling company operations and assorted growth projects until mid-stage then launching new regions until IPO. Graah is a four-times startup founder, investor and advisor in more than 10 companies. 

If the events of the past two years have taught us anything, it’s the value of communities. Not just in the local sense of neighbours helping one another out during hard times, but during the extended restrictions imposed by governments, online communities became a lifeline for many people. 

It cemented a shift that’s characterised the internet over recent years. In the early days of social media, there was a focus on connecting online with people we’d lost contact with in the real world. But more recently, social media has created larger, looser communities that convene around all kinds of topics and interests. However esoteric your hobbies may be, the chances are that there’s a Facebook group or a subreddit just for you. 

While the platforms offer a home for all these divergent interests and causes, they come with some fairly substantial limitations for what a community can do. Firstly, the platforms own and moderate all content and discussions and can close down a group on a whim. Facebook users have even created their own verb for this kind of censorship – dubbing it “getting zucked”. Unless the administrators have established another way to reach members, a group or forum shutdown can spell the end of an online community. 

Furthermore, the demise of many online communities becomes an inevitable outcome of their success. Once a group reaches a certain size, it becomes challenging to manage different expectations, agree on the rules of engagement, and incentivise people to act in the community’s interests. 

Introducing DAOs

DAOs, or decentralised autonomous organisations, emerged from the blockchain sector after the launch of the Ethereum platform in 2015. If we consider any other type of community or organisation like a company, there must be a hierarchy in place. In a company, it’s a formal management structure with a CEO at the top. In an online community, it may be administrators or moderators. 

But in a DAO, everyone holds a stake in the organisation, represented by the ownership of governance tokens. The DAO can also elect people to be in charge as necessary.

When a DAO convenes, the members agree on the terms of engagement and may encode them into smart contracts held on the blockchain. If it needs funding, the DAO enters a funding phase, where a fixed number of tokens are distributed to generate funds for the DAO. 

A DAO is usually governed with votes that are represented by tokens. DAO members may  receive tokens based on financial contribution, but they could also earn governance rights through engaging with the community or contributing in other ways, such as being an early supporter. At any time, a member can submit a proposal for the development of the DAO, and all members can vote on whether or not to implement the proposal. Some DAOs allow for vote delegation, so that individual members select representatives to help monitor development and cast votes based on their interests. Everything is conducted openly – either directly on the blockchain where votes automatically translate into action, or at least on platforms like Snapshot that make decision-making transparent to every DAO member and even the public. 

The DAO can put in place any rules it likes, such as to reward people for participating in voting or penalise people who submit multiple failed proposals. 

A Short History of DAOs

In the early days of Ethereum, an incident took place involving a DAO that became etched on the collective memory of the blockchain community and probably delayed the adoption of DAOs by several years. 

In 2016, a DAO called The DAO was created to act as a kind of decentralised venture fund for Ethereum projects. It raised $150 million worth of ETH (or ethers, the cryptocurrency of the Ethereum blockchain), but within three months, a hacker found and exploited a vulnerability in the underlying smart contract code and drained $60 million from The DAO. The move ended up creating an irreparable rift in the Ethereum community. As such, nobody else was prepared to trumpet the concept of a DAO for several years to come. Perhaps the sole exception was MakerDAO, the DAO behind the DAI crypto-backed stablecoin. 

However, things move fast in the world of crypto. By 2019, innovators were more willing to try again. MolochDAO, another DAO aimed at fundraising for blockchain projects, managed to pull off what the DAO couldn’t and is still going strong today. 

When Compound Finance launched its COMP governance token in summer 2020, it kicked off a new wave of enthusiasm for DAOs within the decentralised finance space. Over the last two years, major DeFi projects including Curve, Uniswap, and Aave have all set themselves up as DAOs, allowing governance token holders to determine the future development of the platforms. 

DAOs in 2022

Now in 2022, DAOs are making headlines across the mass media. Last year, ConstitutionDAO was among the first DAOs to go mainstream. The group convened with the aim of raising enough to purchase an original copy of the US Constitution via an auction at Sotheby’s. Although it ultimately failed in its bid, it did successfully raise $45 million – not a sum to be sniffed at. 

However, perhaps a bigger indicator of its success is that it seems to have sparked a trend, as many other DAOs are now popping up. Another DAO with a cause, AssangeDAO, recently surpassed ConstitutionDAO to become the largest DAO raise on the JuiceBox DAO-creation platform. AssangeDAO will put the funds towards Julian Assange’s ongoing legal efforts on US extradition. 

In the sporting sector, world-renowned former Manchester United footballers Gary Neville and Paul Scholes are launching a DAO to allow fans to invest in football-related firms and projects. The sustainability-minded KlimaDAO, which has attracted backing from Mark Cuban, is aimed at acquiring carbon offsets. 

In the Middle East there is also Arts Dao, an NFT fund that also doubles as a private members club for a community of Web3 artists, investors and collectors; and “The Red Ape Family”, an English-language sitcom starring NFTs created by Dubai animation house Zaini media.

These are only a few examples amid a flurry of activity and the substantial value that DAOs are generating. It seems fair to say that DAOs are already becoming one of the defining tech trends of 2022.  


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